Applicable to all businesses
The IRS has extended the due date of tax payments until July 15th, 2020.
- This applies to both individuals and corporation income taxes. This applies to estimated tax payments due June 15th.
- No action is necessary to take advantage of this provision. The IRS will automatically waive any penalty and interest.
Net Operating Losses can now be carried back up to 5 years.
- This is a change to the current law, and is only available on losses generated through 2020. You can use losses from 2018 tax year, but the amendment must be filed by June 30, 2020.
- Additionally, the limit on Net Operating Loss carry forwards have been increased to 100% of taxable income.
- Additional rules apply for tax years after 2020.
Business losses are no longer limited for 2020. Previously they had been limited to $250k. This limit will be reinstated after 2020.
The limit on business interest deduction (currently 30% of income) is increased to 50% for 2019 and 2020. Separate rules apply to Partnerships.
The 10% of taxable income limit for charitable contributions for corporations is increased to 25% for 2020.
Employers can include as a tax-free education benefit up to $5,250 per year. This is not a new provision. However, payments of employees’ student loans are now eligible.
SBA Loans-Disaster Recovery Loans
- 3-days from application, the SBA must advance up to $10k to the borrower. If the loan is not approved or funded, then this amount is deemed a grant. SBA is currently computing this advance based upon the # of employees as of 1/31/20 at $1k per employee.
- Loan amount is determined by the SBA based upon sustained economic injury.
- Application can be made via the SBA website or a qualified SBA intermediary or Small Business Development Center. Core has partnered with Alliance Underwriting to assist in this process. Contact your tax professional for more information.
- Repayment terms based upon the businesses’ ability to pay, with a term up to 30 years.
- Interest rate fixed for the duration of the loan at 3.75%
- Business had to be in operation as of January 31, 2020
- No personal guarantee required for loans less than $200k.
Applicable to Businesses with Employees
Required Employee Pay for Employers with Fewer than 500 employees (Employer Fact Sheet
- Effective April 1, eligible employees must be paid 2 weeks sick leave.
- Employees who are quarantined and/or experiencing COVID-19 symptoms and seeking a medical diagnosis must be paid at employee’s regular rate. Amount is capped at $511/day and $5,110 for the two weeks
- Employees who are unable to work in order to care for an individual who is quarantined, care of a child whose school or daycare is closed must be paid at 2/3 the regular rate. Amount is capped at $200/day and $2,000 for the two weeks.
- Only for those employees who have been employed for 30 days, an employer must pay an additional 10 weeks for family and medical leave at a rate of 2/3 the regular rate. Amount is capped at $200 per day, and $12,000 for the total 12 weeks.
- These wages are NOT subject to FICA taxes.
The Department of Labor has issued broad exception to this requirement for businesses with fewer than 25 employees.
Payroll Tax Credit for Required Employee Pay
- To offset the cost of the above-mentioned mandatory pay, employers receive a credit dollar for dollar against their FICA match (6.2% of wages).
- It is important to note that this requires the employer to first pay the employee, and then recoup the credit against the FICA match liability on their regularly filed form 941.
Credit for Employers Whose Revenues Have Dropped 50% or more OR had their business partially suspended by a governmental authority.
- The 50% drop is measured by the previous quarter compared to the same period last year.
- The credit is 50% of $10k wages per employee ($5k maximum credit per employee).
- Eligible wages are those paid between March 12th and the end of the year.
- Wages paid under the mandatory sick leave above are NOT eligible for the credit.
- Employers who receive this credit are NOT eligible to participate in the SBA Payheck Protection Program.
Delayed Payment of Payroll Taxes
- The Employer match of FICA (6.2%) deposit can be deferred through the end of 2020.
- Any balance due on the FICA match must be paid 50% by the end of 2021, and 50% by the end of 2022.
- The IRS has been granted broad authority to waive penalties for late payment.
Employers who receive loan forgiveness with the Paycheck Protection Program are not eligible for delayed payment of taxes.
SBA Loans-Paycheck Protection Program (PPP)
- Loan amount is 2.5 times monthly eligible payroll expenses. Maximum loan amount of $10 million.
- Monthly amount is trailing 12-month average from date of application.
- Seasonal employers can use the average from February 15, 2019 through June 30, 2019.
- Eligible payroll expenses include: wages, commission, tips, vacation, medical leave, severance, group health benefits, retirement benefits, local and state payroll taxes.
- Owner’s compensation is eligible as a payroll expense up to $100k/year.
- The amount spent on eligible payroll expenses PLUS rent (or mortgage interest) and utilities during the 24 weeks after funding is forgivable.
- Any amount not forgiven is repaid over 5 years at an interest rate of 1%.
- No personal guarantees or collateral is required for these loans.
- Initial payment on the loan is deferred 12 months.
- Approved lenders make loans. Core has partnered with Alliance Underwriting to assist in this process. Contact your tax professional for more information.
Self-Employed Individuals (Schedule C)
Refundable Income Tax Credit
- To provide for sick leave for the self-employed, individuals with self-employment tax will receive a maximum credit of $5,110. If the Self Employed individual also has employees, the maximum credit available will be $10k.
Extension to file individual returns and pay tax due April 15th has been extended to July 15.
The IRS will send rebates of $1,200 per taxpayer, and $500 for qualifying dependents under age 17 directly.
- Payments will be sent via check or direct deposit, depending on how you have received refunds in the past. Amounts will be calculated based upon 2019 returns, or 2018 if not filed.
- If no 2018 return was filed, the IRS will use information provided to the IRS for 2019 from the Social Security Administration. We expect these rebates to go out by the week of April 20th.
- The rebates will be taxable to the extent a taxpayers income exceeds $75k for an individual, $150 for married filing joint.
The 10% penalty for early distribution up to $100k from IRA’s and retirements plans is waived through the end of the year. Additionally you have 3 years to repay your IRA without having to pay income tax on the distribution.
Charitable Deduction Changes
- $300 of cash contributions are deductible even if you do not itemize.
- There is no limit for 2020 for the amount of charitable deductions if you itemize.
Non-prescription medical products are eligible for payment through Health Savings Accounts (HSA), Flexible Spending Arrangements (FSA), and Health Reimbursement Arrangements (HRA) and Medical Savings Accounts (MSA).
Frequently Asked Questions
Question: Can I get the disaster loan and the PPP?
Question: Does the PPP loan apply to self-employed business?
Answer: Yes. The SBA will not process loans from self-employed businesses until April 10th. Net earnings from self-employment will be counted as eligible payroll expenses.
Question: Do I have to list all of my companies in the PPP application?
Question: If I cannot front the wages before I pay the mandatory sick leave, is there an exemption for me?
Answer: The Department of Labor has the authority to exempt employers with fewer than 25 employees from portions of the mandatory sick leave, but they have not yet issued regulations on that. You can obtain an advance on the credit by submitting Form 7200 to the IRS.
Question: Can you get the PPP loan if you are paying out emergency sick leave?
Answer: Yes, although the wages you pay for mandatory sick leave are not includible in determining the "payroll expense" for the loan.
Question: Does the average monthly payroll for the PPP loan program include taxes paid by the employer.
Answer: Yes, but only state and local taxes such as unemployment. Federal FICA is not included.
Question: For the PPP loan program do I have to keep all of my employees to be eligible for forgiveness?
Answer: If you reduce your full time equivalents (FTE) during the 8 week period below the applicable reference period, you must reduce the forgiveness amount. For example if you had 8 FTEs during the 8 week period after funding, but had 10 FTEs in the reference period, you will reduce the amount forgivable by 20% (2/10).
If you reduce the average wages of any employee 25% or more, than you will have to reduce the forgivable amount as well.
Question: What compensation is included in calculating "payroll expense"?
Answer: Cash compensation up to $100k per employee, plus employer contributions to retirement plans and group health care coverage. State and Local payroll taxes (e.g. state unemployment taxes) are also included.
Question: Do PPP laons cover paid sick leave?
Answer: Yes. "Payroll expense" includes vacation, parental, family, medical, and sick leave. Except for pay mandated by the Families First Coronavirus Response Act mentioned above.
Question: I use a Professional Employer Organization (PEO), do I still qualify for a PPP Loan?
Answer: Yes. You must provide payroll documentation indicating the amount of wages and payroll taxes reported to the IRS for your employees.
Question: How long until I receive money from a PPP loan?
Answer: Lender must fund the loan within 10 days or receiving SBA approval.
Question: Is the loan forgiveness available under the PPP loan taxable?
Answer: Forgiveness is NOT taxable for federal purposes. However, current IRS guidance states that the payroll and rent expenses will NOT be deductible for tax purposes. You will need to check on taxability with your state.